World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Wednesday, October 7, 2009

Here is an interesting interview with Jim Sinclair. As you listen, keep in mind that he is very focused on gold. In general his observations are good, but when it comes to inflation and deflation he is saying that they are both occurring at the same time and that hyperinflation is coming as confidence in the dollar is lost.

By definition, it is impossible for inflation and deflation to occur simultaneously. The total money supply is made up of both real dollars and credit dollars. The shadow banking system distorts and makes knowing the total amount difficult if not impossible. So, he sees the destruction of credit and the money pumping by government, but one of those forces is larger than the other, the odds of them being perfectly balanced are very slim. Jim’s been wrong about inflation… DEFLATION is what is occurring and will continue to occur until the amount of money creation exceeds that being destroyed. Has that occurred? NO, total credit is contracting and total leverage is still decreasing, that is what is happening right now.

He is one of the few to get the relationship of freedom and security correct. He is right that as a whole we have become sheeple seeking security.

In the future, inflation and even hyper-inflation is certainly possible and maybe even probable, but timing is always very important. It's funny because as the market goes up believers in inflation say, "see, I'm right!" And when the market goes down believers in deflation get to say the same. The truth is that the markets do not move in a straight line... we had 30 plus years of never ending inflation and increasing leverage and now deflation is attempting to cleanse the misallocations but is being fought by our government. Their fight against taking the medicine of deflation is going to kill our economy and quite possibly our government, on that Jim is certainly correct... (ht Martin)